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Unconventional Monetary and Fiscal Policy

Author

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  • Jing Cynthia Wu

    (University of Illinois)

  • Yinxi Xie

    (Bank of Canada)

Abstract

We build a tractable New Keynesian model to jointly study four types of monetary and fiscal policy. We find quantitative easing (QE) and tax-financed fiscal transfers or government spending have similar effects on the aggregate economy. Compared with these three policies, conventional monetary policy is more inflationary. QE and transfers have redistribution consequences, whereas others do not. Ricardian equivalence breaks: tax-financed fiscal policy is more stimulative than debt-financed policy. Finally, we study optimal policy coordination and find that adjusting two types of policy instruments can stabilize three targets simultaneously: inflation, the aggregate output gap, and cross-sectional consumption dispersion. (Copyright: Elsevier)

Suggested Citation

  • Jing Cynthia Wu & Yinxi Xie, 2025. "Unconventional Monetary and Fiscal Policy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 56, April.
    • Handle: RePEc:red:issued:24-2
    DOI: 10.1016/j.red.2024.101259
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    2. Bonciani, Dario & Oh, Joonseok, 2025. "Optimal monetary policy mix at the zero lower bound," Journal of Economic Dynamics and Control, Elsevier, vol. 170(C).

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    More about this item

    Keywords

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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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